By Rajeshree Sabnavis and Salika Kothari
Budget 2021 wishlist for pharma and healthcare sectors: The Covid-19 pandemic has presented India with an unprecedented crisis, killing 1,53,624 citizens and infecting more than a crore people. The dreaded coronavirus has put the spotlight firmly on the health and well-being of more than 1.3 billion Indians and brought to the fore the need for a strong healthcare sector.
The nation expects a big push in government spending on healthcare and awaits keenly for finance minister Nirmala Sitharaman’s Budget 2021 speech to find out how the Narendra Modi government will address the most severe health crisis in more than 100 years. This article attempts to present a wish list for the healthcare sector ahead of the finance minister’s Budget 2021 speech.
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Budget 2021 should incentivise research and development
Budget 2021 should reintroduce the weighted deduction for research and development expenditure to incentivise companies to invest more in R&D. Historically, health and pharma sectors spend a significant amount on R&D. During the pandemic, the pharma industry saw many new entrants into the R&D space to support the mainstream pharma companies wherever possible.
The simplified tax regime with low corporate tax rates and no tax deductions would have sounded fine in a normal year. But when the world at large and the economy are hit hard by the pandemic, the government should take a relook at the tax regime not only to boost the R&D efforts, but also to send across a message of self-reliance in healthcare.
It is important that companies incurring expenses and making contributions towards the nation’s efforts to fight the Covid-19 pandemic get some relief, at least for a limited period. As a logical extension of this proposal, the Union Budget should consider tax benefits also to assignees / transferees of the patent and should not restrict such benefits to only the inventor or first owner of the patent.
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Budget 2021: Painless taxation and ease of doing business
From the perspective of ease of doing business, Budget 2021 should abolish provisions relating to tax collected at source (TCS) on sale of goods as companies find the compliances cumbersome. Budget 2020 had introduced TCS on sale of goods, applicable to every seller who receives a consideration for sale of goods of value exceeding Rs 50 lakh in a fiscal year.
As per the current laws, every seller must collect TCS at the time of the receipt of consideration and pay TCS to the government. They are required to file quarterly TCS returns that adds to the additional compliance burden on the seller. Further, Budget 2021 should extend a cut in TDS rates by 25% on the amount paid or credited from March 31, 2021 to March 31, 2022 to leave more funds at the disposal of the taxpayers for dealing with the economic situation arising out of the Covid-19 pandemic.
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From the good and service tax standpoint, the government could offer “zero rating” for health services. Currently, healthcare services are exempt from good and service tax. However, GST paid on inputs continue to become cost and input tax refunds are also not available. A relook at this aspect would be a welcome move from a cashflow perspective for the businesses bleeding due to the economic crisis.
Lastly, cross-border movement of employees is severely impacted by the Covid-19 outbreak. This has resulted in the creation of permanent establishment exposure of foreign companies in India on account of stay of their employees in India. Budget 2021 should clearly issue guidelines, relaxing domestic tax laws to exclude number of days spent by employees in India due to the exceptional circumstances.
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While drafting the proposals, the finance minister could refer to the OECD analysis issued on April 3, 2020 that studies the tax implications of employment changes involving cross-border workers arising due to Covid-19 pandemic. OECD has recommended that the exceptional and temporary change of location where employees exercise their employment because of COVID-19 crisis such as work from home should not create new permanent establishment for the employer.
It is a tight-rope walk for the finance minister considering the conflicting demands of revenues and expenditure. But she should not lose focus on the target of making India a $5 trillion economy by 2025.
(The authors are part of Rajeshree Sabnavis & Associates, a Mumbai-based boutique tax consultancy firm. Views are personal)